Greece and its debt obligations (and default) are back on the agenda in a big way and that means a whole host of experts are filling media air time and column space with what they think will happen next.

They don’t know, but they’ll happily tell you they do. If you’re in the market for a doom and disaster opinion there is no shortage of them. There will be volatility, but predictions of a financial apocalypse where Greece sets off a chain reaction that collapses other countries and ends with savings being confiscated are ridiculous.

The safest option, we’ve always found, is to use history as our guide.

You might be surprised to know a significant number of countries have defaulted on their debt over the years, but the two most notable in recent memory were Russia and Argentina.

In 1998 the Asian financial crisis combined with a decline in oil prices found Russia wanting and unable to pay its debts. Russia’s debt crisis, as with the current Greek crisis was playing havoc with world financial markets.

The months preceding Russia’s default knocked between 8-10% from world share markets, yet after the default happened, confidence appeared to return. Despite the default, Australia, the US and major international markets posted double digit returns for 1998.

Interestingly, after Russia defaulted, some foreign investors said they’d rather eat nuclear waste than buy Russian bonds again, yet a little over a year later foreign investors were back investing in Russian government bonds.

The key point here is when there is opportunity investors will move back in very quickly – as the oil price regained ground so did Russia’s ability to start repaying debts.

Three years after Russia defaulted, Argentina suspended payments on its $132 billion in debt in late 2001. At the time financial markets were still in the midst of shakiness after 9/11 combined with the dot-com bubble bursting, so it’s tougher to trace the impact of Argentina’s debt default, but it was some time in the making (similar to Greece). This meant many international lenders and investors had limited their Argentinian exposure.

Right now Greece is in default and waiting for a weekend referendum on accepting future austerity measures. There are still negotiations on new aid, payment extensions and debt restructuring in the works.

What happens next is anyone’s guess, but it’s meaningless for anyone building wealth for their life, retirement or children’s education. Expectations of volatility like this are built into portfolios according to an investor’s risk tolerance.

Financial markets have at least one correction a year and they all need a reason. At the moment Greece is it. The same media sources that never report on a 2% share market gain will lead their bulletins with a 2% fall and how many billions have been wiped off the market.

Some things never change.

This represents general information only. Before making any financial or investment decisions, we recommend you consult a financial planner to take into account your personal investment objectives, financial situation and individual needs.

Last year the independent senator from South Australia, Nick Xenophon raised a loopy idea that has long been an obsession of the real estate industry. Let first home buyers raid their superannuation to buy a house.

It didn’t grab a great deal of attention and it attracted mostly criticism. Given Xenophon enjoys an occasional populist thought bubble and lacks the ability to carry such a proposal through to legislation, it soon died off – until recently.

With the federal Liberal government struggling in the polls there have been some notable backflips and populist ideas emerging. Xenophon’s superannuation raid for homes was recently reheated by Treasurer Joe Hockey. Given Hockey’s position in the government it attracted significantly more attention and unfortunately somehow legitimised the idea as being worthy of debate.

A similar idea was introduced in Canada back in 1992. Called the Home Buyers Plan, it was suggested to the then Canadian government by the Canadian Real Estate Association during a real estate downturn! First home buyers in Canada are allowed to dip into their Registered Retirement Savings Plan (RRSP) up to $25,000 (increased from $20,000 in 2009) for a deposit on a first home.

The money is meant to be repaid to the RRSP over 15 years, but in 2011 and after $28 billion in withdrawals, the Canada Revenue Agency reported 47% of the people who borrowed the money had never paid back a cent.

When the money is not repaid, a tax deduction previously given for those RRSP contributions is then whacked back onto the individual’s taxable income. So the first home buyer then has an empty retirement account and a larger tax bill! So why would these first home buyers increase their tax bill rather than replenish their retirement account?

Probably because they don’t have the money.

Looking at Canada’s housing market we might be able to understand why. According to the real estate boards of Vancouver and Toronto it now takes over $1 million to buy a house in either city. A situation even worse than Melbourne or Sydney.

And as the graph above shows, Canadian national house prices (the red line) have continued to power upwards becoming more unaffordable since 2009 when the Home Buyers Plan withdrawal limit was increased. Meanwhile in the 3rd quarter of 2014 Statistics Canada announced Canadian household debt had reached an all-time high.

It seems ridiculous for governments to encourage raiding retirement savings to bid up home prices and further indebt ourselves, but let’s look at how it affects a retirement scenario.

Assume two 30 year olds with a 35 year superannuation timeframe. They both have $25,000 in their superannuation account and they’re both currently earning $50,000 per annum, meaning a $4750 yearly super contribution. Over 35 years we’ll assume continuing employment and an annual pay rise of 2%, compulsory employer contributions stay at 9.5% and they make no additional contributions.

The first 30 year old does not take the$25,000 out of their superannuation to buy a house. If we assume a 7.5% average annual market return, their superannuation balance grows to $1,226,997 over 35 years. The second 30 year old does take the $25,000 out of their superannuation to buy a house. Assuming the same market return, their superannuation balance grows to $912,775.

So there’s an over $300,000 or 25.6% difference in final returns.

Pandering to the current angst of first home buyers over rising house prices in some cities may be a popular move in some circles, but it appears extremely short sighted.

Firstly, it hurts the retirement incomes of those who raid their superannuation and may mean they’re drawing a government pension when they previously wouldn’t. Secondly, you never make anything more affordable by throwing money at it. Like with the first home owners’ grants, sellers will see first home buyers coming and adjust their prices upward accordingly.

After all, ask yourself why the program in Canada was suggested by the Canadian Real Estate Association during a market downturn and why it was increased during the financial crisis in 2009 – it certainly wasn’t to push prices down.

This represents general information only. Before making any financial or investment decisions, we recommend you consult a financial planner to take into account your personal investment objectives, financial situation and individual needs

The world’s in a mess! Oil’s tanked. Greece and the European Union are fighting over debt (again). Australia has a Prime Minister hanging on by the fingernails (again). The Australian dollar has cratered against the US. Madmen are running riot through the Middle East (again). Interest rates have been slashed in Australia and all over the world because economies are shaky.

In summary, things have never seemed so uncertain – as usual.

If you’re worried about this mess, remember, despite the endless headlines, those with a balanced and liquid portfolio continue to do quite well.

Some investment rules to remember for the year ahead (and always).

1. Prepare to be surprised. Rarely do we make it through a year without a calamity that will have an effect on markets somewhere. So don’t exit an asset class. This year, like last year (and the last hundred or so), was meant to be end of days, but the recent interest rate cut put a fire under local shares.

The dollar drop also improved returns on unwedge international shares. Who knows what comes next? The point of having a well-constructed portfolio is having various asset classes weighted in line with your risk profile because the future is a guess and you prepare your portfolio for it now.

2. Don’t try to time the market. For the past few years experts have told us why various markets and asset classes will crumble. If you listened, you left those freely available gains on the table for someone else. It’s better to be invested for the long term than paralyzed each day by the latest headline.

Markets will eventually take some time off, but no one knows when. And even when they do, most asset classes will continue to pay you to hold them with ongoing distributions.

3. Don’t buy individual shares. While the local market has raged upwards to its highest point in years, anyone who had filled their portfolio with individual energy or commodity companies was still licking their wounds. It’s an amateur mistake.

Looking for hot tips is time consuming and haphazard. And waiting for great news on one company to fire up your portfolio is true risk. Especially if the market leaves you behind as you twiddle your thumbs waiting for a big announcement.

4. Understand what good returns are. Red hot real estate has been a media go to. Stories of baby boomers piling in with their SMSFs and Chinese buyers flooding auctions are regularly reported in the media as the market heated up, but how hot is the real estate market?

Real estate stats firm RP Data released Australian real estate returns from the beginning of 2009 until the end of 2014 and they ranged from impressive – Sydney up 57% and Melbourne up 50% to more pedestrian – Brisbane up 9% and to Hobart, where prices haven’t moved in six years.

Yet the return on Australian shares over the same period was 90%. Australian listed property returned 93% and unhedged global shares returned 79%. As listed assets experience a minute by minute test of their valuation we get to read headlines like “$50 billion wiped off the market” twenty times a year. This spooks some investors and you’ll find them swearing their investment property can’t be beaten for growth.

5. The economy isn’t the share market. Interest rate cuts signal things aren’t so rosy. When it comes to private debt – a real drag on consumer spending, only in Canada and that other bastion of great financial management, Greece, do households carry more debt than Australia. Yet studies have shown a low correlation between GDP growth and market performance.

Quality companies will make money in good times and bad. And many companies listed on the ASX conduct their business overseas or are US dollar exposed. A falling dollar is better for their returns. There are winners and losers from every economic reality. And the true winners stay diversified and liquid.

This represents general information only. Before making any financial or investment decisions, we recommend you consult a financial planner to take into account your personal investment objectives, financial situation and individual needs.

Divergence in economies and markets was a major theme for investors in 2014, alongside geopolitical tensions and sliding commodity prices.

With US activity picking up, the US Federal Reserve ended its quantitative easing program and signalled potential interest rate rises in 2015. An increase in US interest rates would be the first move since 2008, although it said it would exercise patience.

Meanwhile, Europe and Japan looked to be heading back down the deflationary tunnel. With deflation shadowing Europe, the European Central Bank contemplated its own quantitative easing program, boosting the US dollar. Similarly, in Japan, the economy slipped into recession and Prime Minister Shinzo Abe unveiled another $30 billion stimulus package.

The above chart tracks the performance of the Australian share market over 2013 against some of the major news events of the year. These headlines are not offered to explain market returns. Instead, they serve as a reminder that investors should view daily news events from a longer-term perspective, and avoid making investment decisions based solely on the news.

In China, industrial activity eased and the property market slowed. By November the People’s Bank of China responded by cutting interest rates for the first time in two years. The impact of slowing Chinese steel production and rising supply hit the iron ore price hard. By the end of 2014 the iron ore spot price had lost nearly 50% in US dollar terms.

Oil was a major story. The price ended the year down 45%, with the majority of those losses in the last quarter. Supply was the driver, with US unconventional wells being the world’s new production source in recent years. In response, OPEC vowed to not cut production to accommodate higher cost US oil at its November meeting.

At home, the falling iron ore and coal prices hit Australia hard, dampening incomes and punching a hole in the federal budget. With inflation subdued and the unemployment reaching 12 year highs the Reserve Bank continued to leave interest rates at record lows. With the US dollar rising and commodity prices falling, the Australian dollar fell heavily.

Market Overview

Asset Class Returns

The following outlines the returns across the various asset classes to the 31st December 2014.

Equity markets diverged significantly over the year, reflecting in part the fortunes of the underlying economies. The US, China and India were some of the strongest market performers, while oil dependent Russia was at the rear.

In the December quarter the US S&P 500 hit record highs, registering its eighth consecutive quarter of growth to end the year 24% higher. In Europe the picture was less bright. Major indexes finished the year off in sluggish fashion, just as they began it.

After a double digit negative first quarter, Japan’s Nikkei strengthened thanks to a weakening Yen and further stimulus expectations. Meanwhile in China, the Shanghai Composite went into overdrive finishing the year with a 45% surge in the final quarter.

With the commodity boom continuing to recede, resource exposure was a drag on the Australian market. Consequently, total gains (price and dividend) were modest at just over 5% with a strong final quarter helping to erase the third quarter correction. The top performers came from the healthcare and telecom sectors. Somewhat making up for equities was the impressive double digit returns from Australian listed real estate, again highlighting the benefit of diversifying across asset classes.

The Australian’s Dopey Picks

Last year at this time we brought you the story of how The Australian newspaper’s top stock picks for 2013 had fared. To refresh your memory, it was extremely poor:

Of The Australian’s 66 “top share picks” for 2013 there were 31 winners and 35 losers. The average gain on the winners was 30% and the average loss on the losers was -43%. The average return from all picks combined was -8.86%. A staggeringly bad result when the ASX 300 was up 14.65% which meant this collected wisdom from The Australian’s “industry experts” underperformed the market by over 20%.

The Australian had another list for 2014, but before we get to it, The Australian’s own poor share picking didn’t deter it from wading into a late year discussion on Australian National University (ANU) announcing its intention to divest some energy and resource companies from its investment fund. In an editorial, The Australian criticised ANU for “poor judgement” and “dopey stock picking”.

With that sort of bravado we assumed The Australian was on track for a stellar year with its picks in 2014. Then we tallied them up…

Out of the 65 share picks The Australian offered up for 2014, there were 22 winners, 42 losers and one company that closed the year at the same price it opened. From the 22 winners there was an average return of 41.12% and from the losers there was an average loss of 34.26%.

The average return from all 65 picks was a loss of 8.21%, while the ASX 300 (price only) lurched to a 0.83% gain. So again, The Australian’s picks again underperformed the market significantly; only in 2014 it was slightly less embarrassing because the market didn’t set the world on fire.

However The Australian’s consistency in posting negative returns should serve as another warning to those taking their cues from media investment tips. No matter the market conditions, The Australian’s returns were awful. In 2013 when the ASX 300 posted double digit returns The Australian’s tips finished in the red and in 2014 when the ASX 300 struggled to a positive return, The Australian’s tips again finished in the red. It seems they’re all conditions failures!

This is also a reminder that true diversification isn’t achieved by holding a large amount of shares in one country. It’s achieved by holding a number of funds, spread across asset classes, throughout the world. Once you’ve set up a portfolio like that, there’s no need to look for new share tips each year.

With thanks to DFA Australia.

This material is provided for information only. No account has been taken of the objectives, financial situation or needs of any particular person or entity. Accordingly, to the extent that this material may constitute general financial product advice, investors should, before acting on the advice, consider the appropriateness of the advice, having regard to the investor’s objectives, financial situation and needs. This is not an offer or recommendation to buy or sell securities or other financial products, nor a solicitation for deposits or other business, whether directly or indirectly.

“Predictors of 1929 crash see 65% chance of 2015 recession” that headline made an appearance on The Age and Sydney Morning Herald websites this week. Early on Tuesday it had low prominence, sitting midway down the page, but by about 3pm it had been moved to sit just below the sites’ mastheads.

The internet allows real time reader measurement. Moving the story up the page suggests the interest in the story must have been high. In fact, the story was really taking off everywhere around the internet. And it was a very catchy headline. Some people who predicted the 1929 crash forecast a 65% chance of a recession in 2015. Who wouldn’t read that?

And a 65% chance, no less! We’re grateful they were able to be so precise.

Digging into the story we find Jerome Levy was a guy who flogged his stocks before the crash of October 1929 and these days has a forecasting institution named in his honour, The Jerome Levy Forecasting Center.

Sadly Jerome’s no longer making predictions because he died in 1967. Luckily, his grandson David has seemingly inherited the family forecasting gene and is the one talking bad times for 2015.

David predicted the last financial crisis, which lends some authority to his calls and makes those headlines even more frightening, but in all of those stories telling of the wondrous Levy family forecasting, there were a few dud calls missing. They acknowledged Levy’s previous call of a 60% chance of a US recession in 2011:

“Conditions around the world look progressively more worrisome, and Washington seems to be gradually shifting its focus away from fiscal stimulus toward deficit reduction,” Levy said. “The prospects for a U.S. recession next year have edged up from a toss-up to around 60%.”

The US grew at 1.7% in 2011. So that prediction didn’t turn out, but the media left a few other clangers on the sidelines.

In an awkward piece of timing Levy gave an interview to Barron’s in 2009 where he talked of asset values continuing to contract and multiple recessions ahead. The date was March 9. For those who don’t remember, that was the exact day share markets around the world hit bottom and the bear market ended.

Finally, in an interview with Bloomberg at the end of 2012 Levy said it was time to be defensive. Yet by the end of 2013 Australian shares were 19% higher and global shares were up 48%.

See how this forecasting game works? Get a couple of notable predictions right and the media will keep giving you attention because you “might” be right in the future. They’ll even ignore most of your misses because it ruins the entertaining part of their story. And while today’s media might forget the litany of dud predictions out there, thankfully they’re being preserved by a thing called Google.

This represents general information only. Before making any financial or investment decisions, we recommend you consult a financial planner to take into account your personal investment objectives, financial situation and individual needs.

There is a good reason we continue to highlight the benefits of discipline, keeping your emotions in check, not reacting to market movements and ignoring emotive news headlines.

It’s because history has shown the investors who can’t be disciplined, put aside market movements and media headlines, will inevitably suffer lower than market returns.

The recent correction has provided a great opportunity to illustrate exactly how the media responds throughout two months of volatile market movements. Importantly, we can demonstrate these media reactions while the correction is still fresh in all of our minds.

Below is a chart of the ASX All Ordinaries from the beginning of September until close of trade on October 30. Click on chart for full size.

Overlayed are actual headlines from the Australian Financial Review with arrows indicating when they were published during the correction. We’ve observed these headlines as being an accurate barometer of how the media reported the correction throughout September and October 2014.

At the beginning of September the ASX was near its high point for the year and the equity headlines were positive, with a “Flood of Money Tipped to Keep Shares Going”. From there, the market had a swift decline and halfway through September the AFR noted a “Storm Alert for Investors”.

As the declines continued readers are told of “Fears of More Losses After ASX Wipeout” along with a story detailing past market horrors in October. This one is written every year because the 1929 and 1987 crashes happened during October. Strange that the other 80 odd Octobers that were relatively uneventful haven’t rendered this story useless by now, but journalists need to write stories so they can eat.

Early October and AFR asks “Is This the Last Gasp of the Bull”, while local investment experts begin musing on further bad times ahead – at this stage the market was down over 7%. The market declined another 2% before hitting bottom for the correction. Notably, this was the exact point the AFR capitulated and started talking about bailing out, writing “Knowing When to Use Your Parachute”.

The market moved off the bottom and posted consecutive positive days for over a week. During this time AFR reminded us “It’s Volatile, but Don’t Panic”. A headline that would have been more useful a month earlier after the market had dived and they talked of a “Storm Alert for Investors”.

As the market continued to pull back losses, the reminders about buying opportunities appeared. Yet there were significantly better buying opportunities when they told us to use our parachutes! With the market going up again AFR clearly felt safer about suggesting it was time to buy.

When the market shot back into positive territory for the year, AFR decided to roll out their hindsight machine and smugly suggest “Volatility Is Not a New Thing, Nor Necessarily a Bad Thing”. Again, something that would have been more useful before or during the correction, not when it appeared safely behind us.

We understand market declines can be emotionally trying because as the market falls, so does the equity portion of your portfolio, but here we can see how the media can exacerbate those feelings of nervousness by acting as some form of authority on what’s ahead.

As the headlines on the chart show, they have absolutely no idea what is happening. They’re in reaction mode and their predictions and advice are late, wrong and ignorant.

When the market was at peak they predicted it would continue. After the market fell for half a month they started the panic headlines. When the falls continued, the panic headlines turned to doom with a reminder of past crashes.

As the market bottomed out, they gave advice on jumping. When the market moved upwards for over a week, they then reminded us not to panic. As the market continued to move upward they told us about the bargains we should buy and reminded us to be brave!

Finally, with the market back in positive territory, and after all their emotion charged headlines, they brazenly tell us what just happened isn’t new, nor a bad thing!

Little wonder why today’s newspapers are lining bird cages tomorrow.

This represents general information only. Before making any financial or investment decisions, we recommend you consult a financial planner to take into account your personal investment objectives, financial situation and individual needs.

If you haven’t heard, Australia’s mining boom appears to be on the wane. While some commodities appear to be holding up, Australia’s largest mining export, iron ore, has spent the year on a downward slide with the spot price declining over 30%. Such declines bring sharply into focus the budgets of governments, the bottom lines of mining companies and the fortunes of undiversified investors.

Take Western Australia’s Key Budget Assumptions. The 2014-15 WA budget estimate was for an average iron ore spot price of US $122.70. The forward estimate for 2015-16 was for $120.10. For 2016-17 it was $117.60 and for 2017-18 it was an average spot price of $115.

As of writing the iron ore spot price had fallen below US $85. And the decline from over US $120 at the beginning of the year has already mothballed mining projects across the country.

In Tasmania, Shree Minerals started up their Nelson Bay mine in late 2013 and despite talk of 30 years of production and 150 jobs; mining activity had halted by mid-2014. There seemed to be ongoing conjecture regarding their costs; a Shree presentation suggested AUD $81 per tonne, but they stopped mining when the spot price slipped below US $100 per tonne.

Northern Territory iron ore miner, Western Desert Resources suffered an even more disastrous outcome with the administrators called in this month. Macquarie Bank clearly saw the writing on the wall for iron ore prices and wouldn’t extend Western Desert Resources’ $80 million dollar debt facility. WDR had been experiencing problems with its loading facilities.

There were some high profile shareholders and directors scalped in this debacle. Pokies billionaire Bruce Mathieson, former Coles Myer chairman Rick Allert, Billabong co-founder Scott Perrin and former Woolworths CEO Roger Corbett, among the notables. Another reminder that big names involved in a company aren’t actually a reliable indicator of success.

The most interesting story came from Macquarie’s research arm. Back in January, Macquarie Private Wealth analysts put an “outperform” recommendation on Western Desert Resources with a price target of $1.05. At the time it was trading at 71 cents and Macquarie analysts offered the following:

Our estimates suggest the company should generate sufficient free cash flow to repay the $80m debt facility with Macquarie Bank within 12 months.

And less than nine months later Macquarie pulled the pin on that debt facility. Though Macquarie Private Research wasn’t alone with their bad call. Foster Stockbroking and Commonwealth Bank Equities saw similar big things for Western Desert Resources.

Chalk up another big loss for share pickers and analysts!

The strange thing was the analysts’ blindness to what was potentially coming in the iron ore market – the thing they’re paid to know about! Not only had the higher iron ore prices been prompting junior miners like Western Desert Resources and Shree to jump in the game, the majors like BHP, Rio Tinto and Brazil’s Vale had forecast they would massively increase their production.

Take BHP’s production report for the year ended 30 June 2012. BHP’s iron ore production stood at just over 159 million tonnes per annum (mtpa). By the year ended 30 June 2014 it had swelled to 203 mtpa with the expectation of 245 mtpa in 2015 and potential growth to 270 mtpa in the future.

Similarly, Rio was producing 230 mtpa in 2012, but had expanded to 290 mtpa in 2014. Their end goal is 360 mtpa for 2015. There were similar production ramp-ups coming from Andrew Forest’s Fortescue – up to 150 mtpa and the start of Gina Rinehart’s privately held Roy Hill project at 55 mtpa. Looking at a cost comparison of ASX listed iron ore companies might give an indication as to why BHP and Rio were enthusiastically increasing production.

$70 iron ore isn’t a great concern for Rio or BHP with their economies of scale, but a massive supply deluge could wipe out the majority of their listed competition. Not that any of this was given coverage in the establishment media over the past few years – nor from investment analysts who continued to have optimistic buy ratings on smaller iron ore miners.

This isn’t meant to be research on mining companies or the sector as a whole, but it is meant to be an indicator of how hard it is for an investor to successfully invest in individual companies or sectors. There are an immeasurable number of moving parts and variables that go into tracking the fortunes of one share.

Try being appropriately informed and abreast of the risks on 5-10 shares!

Especially when the information peddled by the media and investment analysts (the information you rely on) appears woefully ignorant until it’s too late. You might notice the media has now discovered the iron ore price has gone down and the reasons why. Subsequently, there are now wall to wall stories with experts and pundits telling us what we should expect next.

The same experts and pundits who’d previously told us to expect something completely different. Take Sydney Morning Herald economics editor, Ross Gittins, and his quotes from 2009 and 2012 that encapsulate the “she’ll be right” message he’s delivered his readers on mining over the past few years:

2009: That’s the point that’s slowly dawning: the resources boom is coming back and has decades to run. It will involve further huge expansion of our mining industry and huge growth in the volume of our mineral and energy exports, either at prices roughly the same as they are now or, quite possibly, higher.

2012: For a start, it’s a bit soon to be kissing the boom goodbye. Spending on the building of new mines and liquefied gas plants is expected to grow strongly for another year before it starts to fall back. Even then, it will stay way above what we normally see for several more years.

Yet last month Gittins levelled with his audience, questioning the value of the boom and timing his backflip perfectly as iron ore looked to fall below $90.

So the chances of your mine being completed in time to enjoy the super-high prices aren’t great – the more so because it’s essentially a self-defeating process: the more firms join the race and the harder they try to be among the first to complete, the sooner supply catches up with demand and prices start falling.

Just another reminder to ignore the forecasts of journalists and media pundits. And if iron ore makes a recovery what commentary should we expect from Gittins then?

As for the iron ore companies listed above (excluding BHP and Rio Tinto) their share prices have all declined a minimum of 30% this calendar year. Rio Tinto is down 10% and BHP a more modest 5.5%.

Meanwhile, the ASX All Ordinaries is up nearly 5%. Listed property is pushing over 15%. Fixed interest is up just under 5% and international shares have returned under 0.5%.

Iron ore is an interesting sector, but if even “the experts” can’t get it right why should anyone else invest their time when a diversified portfolio combining the above asset classes has provided reliable returns over long time frames?

This represents general information only. Before making any financial or investment decisions, we recommend you consult a financial planner to take into account your personal investment objectives, financial situation and individual needs.

The Wolf of Wall Street has been released in Australia and unlike most financial films it has garnered a great deal of attention.

Most of this is to do with its excess and the cartoonish nature of the film, also the fact it breaks a world record for the use of the F-word on celluloid!

Think Goodfellas, just set on Wall Street and without all the murders.

But is there anything to be learned as an investor? Plenty, but most of it is featured in the first hour before the film turns farcical.

We begin as the film’s subject, Jordan Belfort, has his introduction to stockbroking at a major Wall Street brokerage firm.

His ideals of making money for his clients and his employer are shot down by lunch time, as he’s told, “the name of the game, moving the money from the client’s pockets to your pocket”.

Not that this should be a surprise as an academic study called “Inside the Black Box of Sell-Side Financial Analysts” found over 50% of brokers rated retail clients as “not important at all” to their employer.

After the crash of 1987 Belfort was unemployed and took a job pushing penny dreadful shares to unsuspecting investors.

The sales techniques Belfort learnt on Wall Street made him a star as he convinced investors all over the country to buy unheard of companies based on concocted stories about their potential.

It’s here you get to see those shonky sales pitches that inevitably form the basis for every investment scam or scheme that was ever perpetrated.

And while they might be shonky, they can often be skillfully executed which makes them more dangerous for the unsuspecting.

In my experience, financial success is gained through two key actions that we all have the ability to leverage. The two keys to financial success is hard work and sound decision making. Over time if we consistently make unwise decisions, we will find ourselves in a situation that is difficult to recover from.

Just like other things in life, achieving financial success is more about hard work and making the right choices rather than circumstances outside of our control. Making savvy Personal Finance decisions starts with understanding why we make bad financial decisions in the first place and making a conscious effort to change the way we handle our money.

None of us are perfect as we are all human and are guided through life by a mix of ideals, morals, instincts and emotions. These factors can have a large influence on the financial decisions we make everyday. Some help us make good decisions and others not so much.

Savvy financial decision making begins with understanding that emotions and other elements of the human experience can impair your ability to make good financial decisions. The following list of savvy financial decision examples can help you improve your financial situation and avoid making poor financial decisions in the first place.

Making Better Financial Decisions

Create a Financial Plan – You know my first piece of advice will always be to create a financial plan. A plan will automatically help you increase your financial decision making savvy by showing you the impacts of the decisions you make on a daily basis.

Difference Between Needs and Wants – Far too often we buy the things we do not need. When we spend money to buy frivolous items or overpay for things we do need, we are throwing away the opportunity to let our savings and investments grow at a faster rate. Take the time to explore the concept of needs and wants, let your conclusions guide your future financial decisions.

Don’t Max Out Your Mortgage – In the past, many of us have bought as much house as the bank would let us. We let the lenders and mortgage companies tell us what we could afford. This decision put many of us in a rough financial situation that we are still working through. So if you are exploring the opportunity to buy a house, don’t max out your mortgage.

Automate Your Budget – Taking the emotion out of budgeting and spending less is as easy as opening a bank account. When separating your discretionary and non-discretionary expenses into two bank accounts you will make it easier to save money by removing the temptation to buy the things you don’t really need.

Invest a Little Each Pay Cheque – Consistent investing is the best long-term strategy for making your money work for you. Investing 5-10% of every pay cheque is a great way to build a solid nest egg and easily increase your net-worth.

Don’t Ignore Insurance – One large bill, from a car accident for example, can wreak havoc on your financial plan and severely limit your chances of ever being financially independent. Ensure that your insurance covers you from any large unavoidable bills in the future. I know paying for insurance is not on the top of your to do list, however you will thank me if anything ever goes wrong.

It’s that time of year when we get to hear an avalanche of financial predictions for the year ahead – mostly because people are on holidays, but the media still needs to fill space in the silly season.

The television stations and newspaper quote the analysts with their forecasts about what may or may not happen.

So it’s always an interesting exercise to peak in rear-view mirror and see what they said way back in December of last year.

We can start off with Hugh Giddy, senior portfolio manager at Investors Mutual, who wasn’t so giddy about 2013.

According to Mr Giddy, the sale of a 1954 painting by Mark Rothko for $75 million late in 2012 was a sign we were getting ahead of ourselves.

He feared 2013 might be a return to the bad old days, where credit markets froze and shares plunged – this based on some rich guy buying a painting that looked like a 1920’s football jumper.

Chief market analyst at City Index, Peter Esho thought it would be a decent year for mining, highlighting coal stocks for a bounce after a woeful 2012.

Hew Hope, our largest listed coal miner led the way down with a 20% decline for the year (so far) and the results from other coal companies only got worse from there.

The Australian Financial Review told us 2012 couldn’t be repeated, “posing dilemmas for investors wondering how to invest in 2013”.

Of course most investors without an investment strategy or time machine would be left wondering how to invest in 2013, 2014 and 2015 and beyond.

For the record (at the time of writing) the ASX was up around 9% this year and the Dow Jones was up around 20%.

Like every other new year, we don’t know what is in store – that’s why we should have an investment strategy tuned to our risk tolerance and a healthy emphasis on diversification.

The gurus don’t know any more than the rest of us and if they did, why would they tell us?

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